Authorised Guarantee Agreement - what is it and how does it work?

What is an Authorised Guarantee Agreement?

An Authorised Guarantee Agreement (AGA) is a form of guarantee where an existing tenant of a commercial lease agrees to guarantee the tenant’s obligations if he/she/they transfer the lease part way through. It is common for the lease terms to provide that the outgoing tenant must enter into the AGA. Notwithstanding this, it may be possible to still negotiate the terms.

An AGA acts as a safety net for landlords, offering an additional layer of security in case the new tenant (assignee) defaults on their lease obligations.

Where the lease does not require an AGA

Generally, a landlord cannot refuse consent to an assignment of the lease solely because the tenant refuses to provide an Authorised Guarantee Agreement (AGA) when the lease does not expressly require it.

Ultimately, whether an AGA is required to ensure the Landlord’s consent, depends on several factors, including:

• Risk assessment by the landlord - the landlord will consider the financial strength of both the assignor and assignee, the complexity of the lease, and the length of the remaining lease term.

• Negotiation between the parties - the outgoing tenant and landlord can negotiate whether an AGA is necessary and, if so, the terms of the agreement.

• Alternative Guarantees - explore alternative forms of security for the landlord, such as a rent deposit or guarantor from a third party.

Key clauses in AGA

• Guarantee obligations - Guarantor's promise to perform the tenant's lease covenants if tenant defaults. Usually includes payment of rent and other sums due. Often includes obligation to take new lease if original lease terminated.

• Duration and scope - when guarantee becomes effective, how long it lasts.

• Which specific obligations are guaranteed - whether it covers just rent or all lease obligations.

• Guarantor restrictions - prevention of release without landlord consent. Restrictions on guarantor's ability to take security from tenant and limitations on guarantor's rights of subrogation.

• Landlord rights - ability to pursue guarantor without first pursuing tenant, right to make multiple demands under guarantee.

• Clear definitions of guaranteed obligations - interaction with original lease terms, release provisions if permitted assignments and caps or limitations on liability if negotiated.

Risks for the tenant

Entering into an AGA, where it might possibly be avoided (see below) can significantly impact the outgoing tenant due to ongoing and uncertain financial Liability. If the assignee breaches the lease covenants and fails to fulfil their obligations, the outgoing tenant becomes liable for damages and potentially legal fees.

How we can help

We advise both landlords and tenants on :-

• Negotiating and drafting AGAs.

• Scope of guaranteed obligations.

• Duration and release provisions.

• Liability limitations.

• Interaction with other lease provisions.

Whether you're a landlord seeking protection or a tenant being asked to give an AGA, our commercial property team can help ensure your interests are protected while meeting statutory requirements.